A whiff of scandal hangs over the political scene. Have rich Labour party supporters been asked to give money in the shape of unpublicised loans on the understanding that this would result in life peerages? The question hit the news last week with the surprise arrest of Lord Levy, Labour's chief fundraiser and a personal friend of Tony Blair. It's a good opportunity to explore the nature of the British honours system.

The cost of modern politics

Invite students to imagine how much it costs a major political party to fund an election campaign. What kinds of things might they have to pay for?

Get them to compile a list: advertising, office space, transport, and so on. Having done so, it will not surprise them much that, according to the Electoral Commission, both the two main parties ended the last election considerably in debt. Invite pupils to study the following article, breaking it up into subtitles that identify the key financial problems the parties face: http://politics.guardian.co.uk/funding/story/0,,1823763,00.html

How can political parties raise money to cover their costs? Local fundraising is never going to raise the millions needed. What the Lord Levy affair has exposed is the secretive side of the business, involving politicians and fundraisers pursuing rich businessmen for loans and the expectations these donors may have had about a reward for helping out.

The law and the controversy

Tell students they have been commissioned to come up with a Newsround-style programme exploring the cash-for-honours controversy. In writing the script and identifying potential interviewees, pupils will need to find out about the 1925 law that may have been broken, and how Labour may have got around its own recent tightening of the rules.

Why do some people aspire to a peerage? What do your pupils know of how the honours system has evolved? The Normans introduced knighthoods, awarding power in return for service to the crown. Handing out honours and other rewards was a way of acknowledging friends and those who fought alongside the king. Today, the system is more democratic, with the Queen taking the advice of officials about whom to reward. But prime ministers now have the power to reward their allies by giving them peerages.

There has been a big shift in the system so that more "ordinary" people receive recognition for the good work they do. Pupils can look at case studies, including the tea lady who was honoured in 2003 at www.honours.gov.uk/case_studies.aspx.

There is concern that the current crisis further alienates people from politics, increasing voter apathy. This is because it is a reminder that power and influence in Britain are still wielded by people with wealth and connections.

The broader subject of apathy can be explored at the YVote section of the Learnpremium site (www.learnthings.co.uk/Index/homepage.aspx ). The honours controversy has also reignited discussions about how political parties in the UK should be funded http://politics.guardian.co.uk/funding/comment/0,,1820258,00.html Do pupils feel political parties should be paid for by the taxpayers? If they think this would be all right for the three mainstream parties, what about the BNP? Should it receive public funds too? The Guardian's daily news service for children (www.learnnewsdesk.co.uk) offers a complete KS3 lesson plan for students and teachers wishing to explore the honours system in more detail